Los Angeles Women’s March: The People’s Inauguration

They were young and old, women and men, black, brown and white and everyone in between. All crushed together in a crowd officially estimated at 750,000 – far larger than expected but mellow, good-natured and happy to be seen.

They were young and old, women and men, black, brown and white and everyone in between. All crushed together in a crowd officially estimated at 750,000 – far larger than expected but mellow, good-natured and happy to be seen.

The Los Angeles marchers were welcomed by a giant banner in Pershing Square declaring the theme of the Saturday event: “On the shoulders of those who came before you and in service of generations to come. Thank you for showing up for Democracy and Justice.”

The homemade signs were funny, poignant and angry:

“I’ve seen smarter cabinets at Ikea.”

“Thou shall not mess with reproductive rights. Fallopians 1:21.”

“Girls just want to have fun….damental rights.”

“Our rights are not up for grabs and neither are we.”

I came to the march (which was co-chaired by Emiliana Guereca, an event producer, and TV producer Deena Katz) on a bus arranged by Westside City Councilmember Mike Bonin, and sat next to a middle school teacher I didn’t know. Apparently, like many at the march, she had never before been to a demonstration – disliking crowds and fearing possible violence. But after a lot of her smart friends said they were going, she decided to join. And loved it.

Thanks to the skill of the organizers and coordination with the L.A. Police Department, there was nary a uniformed officer in sight, adding to the celebratory nature of the march. This added to the feeling that the march represented the majority sentiment, not the fringe. That message was brought home by County Supervisor Hilda Solis, who proclaimed, “This is the real inauguration of the people.”

Nearly all my friends went to the march, but I saw only five people I knew — that’s how big the turnout was. While my group was trapped in the crowd at Pershing Square for two hours, tens of thousands of other people were stuck on Olive, Sixth and Fifth streets, all the way to Broadway. When we finally did start to march we never made it to City Hall and missed the welcome from Mayor Eric Garcetti and other speakers, as well as the opportunity to sign up for future involvement. A huge line of marchers continued down Spring Street for another hour, moving past the speeches as people mingled to chant, buy food from vendors and bask in the presence of so many declared feminists. Transportation home by Metro was backed up for hours.

While I was marching in L.A., my son, daughter and grandkids were in the Oakland Women’s March, and good friends were in Washington, D.C.’s This kind of movement mobilization, for an idea and a social cause — as opposed to a candidate — bodes well for the future of feminism – a feminism that links the issues that oppress women and retard their ability to be self-determining. The beauty of the Women’s March is that immigrants and workers, people of color and LGBTQ activists, reproductive rights advocates and environmental defenders, all can see themselves in one movement with different priorities. We used to call that pluralism in the 1970s and it’s what we need now to rescue our progressive vision.

As beautifully expressed by 18-year-old Get Lit poet Jessica Roma, in her spoken-word presentation, “I was taught to be a woman meant to be rescued by someone else.” There is no one coming to rescue us but the power of our own organizing, advocacy and creativity. It’s time to get to work.

Apartment Renter: Short-term guests begin lining up around 11 a.m., spilling out onto the street as other guests check out.

Home-sharing

. This cozy phrase once conjured images of a homeowner generously opening up a room to out-of-towners—while the fee charged by the owner helped him with mortgage payments. Or perhaps we pictured an apartment dweller who left for the weekend and made a little extra cash letting someone else use the premises.

But the present reality of home-sharing is not so cozy for single-family residential neighborhoods, where out-of-town guests may feel no social pressure to allow the neighbors a peaceful night’s sleep or to not trash the rental home.

To see today’s home-sharing up close, visit the Ellison Suites in coastal Venice, just a block from the famed Venice Boardwalk. Built in 1913 and covered with gigantic murals of Jim Morrison, Marilyn Monroe, John Hurt and Lana Del Rey, it boasts 58 units—but only 12 apartments are occupied by permanent tenants, according to one resident.

“We used to have neighbors for 20 years—now we have them for 20 hours.”

Photo: Bobbi Murray

Beyond the Ellison’s courtyard, people bump wheeled suitcases up the building’s front steps and, on Fridays, signs advertise the night’s upcoming party. It might offer a fire dancer, but most parties will at least include free beer and wine — and music that reverberates up through the courtyard.

“We used to have neighbors for 20 years—now we have them for 20 hours,” said Bruce Kijewski, one of the remaining tenants, who has lived here since 1977. In the summer, he said, guests begin lining up around 11 a.m., spilling out onto Paloma Avenue as other guests check out.

The displacement of tenants by large-scale operators who turn their buildings into de facto hotels hit hard in urban areas like Greater Los Angeles, which is plagued by a nearly three percent rental vacancy rate.

Photo: Bobbi Murray

While mom and pop are in on some of the home-sharing, today its booming business model most benefits commercial operators who can make more on short-term rentals (STRs) than on permanent residents.

STRs are promoted by a slew of home-sharing platforms, including Airbnb, now valued at $31 billion as it moves toward being publicly traded; and HomeAway and subsidiary VRBO, valued around $3 billion in 2015. The platforms profit by collecting a percentage on every rental offered on their sites by home-sharers.

Local municipalities are scrambling to figure out and ameliorate STR impacts on their neighborhoods and housing stock. In May, Los Angeles City Council measure was sent to the city attorney’s office for language changes and is expected to go before the city planning commission in September. The proposed ordinance would set up a permitting system for short-term rentals and establish a 120-day yearly limit for home-sharing. Two nuisance violations—enforced by a city agency—could get an operator’s permit revoked.

The Ellison Suites, zoned as a rent-stabilized apartment building, in effect operates as a hotel.

The lowest nightly rate listed on the website is $149. That apartment, when rented to vacationers, could yield $4,470 monthly.

With the Ellison’s current rent-stabilized protections, it’s hard to straight-up evict someone, but there are ways of persuading them to flee their apartments to make them available for tourists and other visitors.

Michael and Susanne Detto, Ellison residents for 14 years, rented their apartment for $2,000 a month before they moved out in May. All-night parties in the courtyard below their apartment made it impossible to sleep—both work 12-hour shifts as nurses. “It was so loud we couldn’t even talk to each other,” Susanne Detto said.

Breakdowns in maintenance–power outages, faulty plumbing, leaking ceilings—plus an altercation with management during one of the raucous parties were all part of what the Dettos claim drove them out.

“Especially in summer, he makes three times the money if he rents out every day,” Michael Detto said of the Ellison’s landlord.

Kijewski and other Ellison tenants say landlord investment goes into creating a hotel entertainment experience rather than supporting habitable apartments. Residents have filed dozens of complaints with the city against building owner Lance Jay Robbins’ Paloma Partnership LLC, citing bad plumbing, inadequate water supply, construction without permits and change of use/occupancy without a building permit. (Multiple attempts to get a response from Robbins for this story were unsuccessful.)

Michael spoke wistfully of a community where neighbors once shared poetry readings, art discussions and fundraisers in the courtyard now occupied by high-octane weekend parties.

The company appealed the building’s status to Los Angeles’ Building and Safety Commission, arguing that short-term rentals should be allowed because the city’s initial certificate of occupancy designating the Ellison a residential apartment was in error and that the building is a hotel.

The company lost. Another appeal is headed for the city planning department.

Meanwhile the Ellison continues to advertise online as a hotel.

With today’s lucrative rates of return, it’s easy to see why, for large-scale operators, short-term stays make for a more attractive business model than permanent housing. Customers staying for a few nights might do some hating online, but won’t be there to press on long-playing maintenance issues.

Tenants at the Metropolitan in Hollywood experience the same push-out climate as Ellison residents, according to Susan Hunter, a case worker with the LA Tenants Union, which is part of a coalition that includes representatives from Los Angeles’ hotel industry, labor unions and community groups.

Zoned as a residential building, the 52-unit Sunset Boulevard property owned by the Harridge Development Group is advertised online as an “apartel.” Tenants approached for this story didn’t want to speak, they said, for fear of retaliation, but they have complained to Hunter of loud parties, with fighting in the halls and kicked-in doors.

Apart from creating chaotic conditions for tenants sharing space with STRs, the home-sharing model leaves an even larger social footprint. The incentive for large-scale operators everywhere to acquire units—including entire homes — and move them off the permanent housing market places upward price pressure on housing.

From Seattle to New Orleans to Barcelona and beyond, housing advocates are assessing the effects of short-term rentals on housing markets and figuring out how to respond.

In New York City, short-term rentals have resulted in a loss of as many as 13,500 rental housing units, according to a January 2018 report from the School of Urban Planning at McGill University. (The study was commissioned by a labor group opposed to home-sharing.) New York has passed legislation requiring registration and other monitoring measures.

A 2015 San Francisco Board of Supervisors Budget and Legislative Analyst report estimated that Airbnb short-term rentals alone had removed between 925 and 1,960 units from the city’s housing market. These, along with 8,000 units already being used for short-term rentals, add up to an 11 percent reduction in rental housing.

Like other cities, San Francisco has aimed to define and enforce the number of nights STRs are permitted. Studies based on data from insideairbnb.com show that, in Los Angeles, renting out a property as a short-term rental for 83 nights or more annually produces more profit than the property could earn as a long-term rental.

In San Francisco, the cradle of Airbnb and adjacent to tech hubs, municipal leaders face an affordable housing shortage and a vacancy rate below three percent, and have established a registration process for short-term rental hosts. Regulations set a cap of 90 days per year for hosts that don’t live on the property. Violators are subject to stiff fines.

Seattle, headquarters of several tech giants, took an approach that attacks the short-term rental issue as part of the affordable housing problem. The city defines a short-term rental as a maximum stay of 29 nights and sets up a licensing system.

Joan Ling, an urban policy analyst who has worked in affordable housing and mixed-use development for over 30 years, supports short-term rental regulation but sees it as only a piece of the larger question of creating affordable housing to support working families. Los Angeles, she said, “has a ways to go . . . Anything is better than nothing. What [regulation] can do is reduce the harm that can be done [by] removing units. The affordability crisis is so pervasive, so deep—we need a huge number of policies to address the crisis.”

Michael and Susanne Detto are happy living in their new apartment in Santa Monica—no all-night parties, the plumbing works and it’s a 10-minute walk to work. But before the Ellison got pieced out for short term-rentals, the couple also liked their Venice home.

Michael spoke wistfully of the community where neighbors once shared poetry readings, art discussions and fundraisers in the courtyard now occupied by high-octane weekend parties.

Susanne likes where the couple landed, but reflected on the overall cost as tenants got pushed out by the STR model.

“We lost a lot. We lost a lot of our neighbors. We’re still kind of recovering.”

California Protects Low-Income Access to Farmers Markets

Food deserts and food swamps have limited poor people’s ability to obtain fresh produce. Allowing SNAP use at farmers markets ensures that the markets are accessible to low-income people and are not the sole domain of the rich and well-off suburbanites.

This story first appeared in The American Prospect. Capital & Main is co-publishing it in partnership with the Prospect.

Last month, a complex government contracting decision created tumult in the farmers market world by threatening the ability of nearly 2,000 markets across the country to accept Supplemental Nutrition Assistance Program (SNAP) benefits, formerly known as food stamps. However, thanks to a resilient state program, only one of those markets was in California.

The U.S. Department of Agriculture runs a program in which private contractors provide software and Electronic Benefit Transfer (EBT) processing equipment to farmers markets. But as the Prospect reported last month, the federal government abruptly changed its contract, forcing one major software company to announce it was going out of business during prime market season. The nonprofit Farmers Market Coalition began to crowdfund for markets to buy new equipment, and the National Association of Farmers Market Nutrition Programs and the state of New Yorkhashed out plans to fund the software company, Novo Dia, so it could continue to operate for the rest of the summer season.

Through it all, however, farmers markets in California remained almost entirely insulated from this problem. In some states, farmers markets can choose a state program instead of the federal one to help pay for SNAP/EBT processing equipment, as this equipment can be expensive for farmers markets that often operate on slim budgets. While some states with their own equipment programs provide a limited amount of funding, California’s program pays all associated costs and fees for such transactions and provides free equipment to all approved markets. Nearly all of the state’s markets choose to work with the state program, which is run by the California Department of Social Services (CDSS).

Ever since EBT gained popularity two decades ago, California has been committed to making farmers markets accessible to people who use SNAP benefits to buy groceries, says Carle Brinkman, the food and farming program director at the Ecology Center, a sustainability nonprofit in Berkeley. In 2003, as paper food stamps were becoming obsolete in favor of EBT software, CDSS funded a project with the Ecology Center to pilot wireless point-of-sale devices that helped cement SNAP/EBT access at farmers markets. Since 2008, California has negotiated with its statewide EBT-processing vendor to include such equipment in the vendor contract itself.

“This mean[s] that the individual farmers market vendors or managers [do] not have to research which terminal to purchase, worry about coming up with the money for the terminal, or have to learn how to set it up on their own,” Michael Weston, CDSS’s deputy director of public affairs and outreach, told The American Prospect in an email. “The free wireless terminals have supported the farmers markets and direct farmers and have proven to be a real success in California,” he says.

There are 588 farmers markets, individual farmers and community-supported agriculture projects that accept California’s SNAP benefit, CalFresh. In 2017 alone, more than $4 million in CalFresh benefits were redeemed through farmers and farmers markets.

The free equipment, says Brinkman, is just a “regular old card reader” that she and colleagues refer to as “the brick” because of its clunkiness and its durability. Brinkman and the Ecology Center provide guidance and resources to farmers markets, such as assistance in applying for approval to accept SNAP, as well as connecting them with CDSS’s equipment program.

A history of crop subsidies for the ingredients in processed food has long made unhealthy foods both cheap and widely available, and food deserts and food swamps have limited poor people’s access to fresh produce. Allowing SNAP use at markets is key to ensuring that markets are accessible to low-income people and are not bastions of the rich and well-off suburbanites, as is commonly perceived.

California’s state equipment program “has been incredibly successful in taking a major step to make sure that farmers markets are for all people,” says Brinkman. Many markets nationwide, including hundreds in California, offer incentive programs that can double the value of a shopper’s SNAP benefit at the market, increasing the amount of produce they can put in their shopping bags. California’s Market Match program, which the Ecology Center manages, has served hundreds of thousands of shoppers since it began in 2009. According to a 2013 survey, the vast majority of low-income people reported that such incentive programs helped draw them to their farmers market. Brinkman says that these programs are one way to draw farmers markets to low-income communities, too.

California’s program is “allowing greater access to the farmers markets as a community resource,” says Brinkman. Entire communities can participate in “a sort of alternative local food system” where both farmers and the local community benefit. Many markets offer activities, Brinkman points out, like Zumba or reading programs for kids. More than a collection of healthy food stands, they can become community gathering spaces. But for that to happen, markets need to be supported with the resources to operate.

Trump’s Treasury Department Hands Banks a Windfall

Co-published by Splinter
The Treasury Department not only sided with banking lobbyists’ definition of “financial services,” but its new rule’s fine print echoed their interpretations of the 2017 federal tax law.

Do “financial services” include banking? Not according to the Trump administration, whose new rule, issued Wednesday by the Treasury Department, argues there is a difference — and then cites the alleged difference as a means of extending lucrative tax breaks to the banking industry. The new rule represents more than semantic hairsplitting and hands a huge windfall to the banking industry.

At issue is the Trump tax bill’s treatment of so-called pass-through income — or income that is gleaned from partnerships, LLCs and S corporations. The 2017 Republican tax legislation dramatically slashed tax rates on income from such entities, generating a firestorm of criticism that it was a giveaway to real estate moguls like Trump, U.S. Senator Bob Corker (R-TN) and other Republican backers of the legislation who have such entities in their personal portfolios. (The criticism became known as the “Corker Kickback” scandal.)

To reduce some of the cost of the overall tax cut bill — and to mute some of the specific criticism of the pass-through sections — GOP lawmakers included provisions prohibiting certain kinds of businesses from qualifying for the pass-through tax cut. One such business was “financial services,” and its removal countered assertions that the bill could enrich big banks.

However, less than a year after passage of the tax legislation, the Treasury Department, headed by former banker Steve Mnuchin, issued the proposed rule whose fine print asserts that “financial services” actually do not include banking. If that interpretation of the tax bill stands, hundreds of banks operating as S corporations — as well as their owners — could claim the tax cut.

“This is illustrative of the rigged process behind the bill, which was rushed through Congress without a single public hearing,” the Center for American Progress’ Seth Hanlon told Capital & Main. Hanlon served on President Obama’s National Economic Council. “How many members of Congress, let alone members of the public, understood that ‘financial services’ didn’t mean banking, and therefore that bankers would get a massive tax cut? This is the opposite of real tax reform.”

Banking industry lobbyists pushed for the interpretation — acknowledging that the bill generally blocked pass-through tax cuts for businesses in financial services, but arguing that “financial services are, however, clearly something other than banking.”

“We had extensive discussions with Congressional staff and various members in both the House and Senate,” wrote the American Bankers Association, Independent Community Bankers of America and Subchapter S Bank Association in a letter to the Treasury Department. “In the course of these discussions, we were assured repeatedly that S Banks would qualify for the lower tax rate for pass-through businesses.”

The Trump Treasury Department not only sided with the lobbyists, but in the fine print of its new rule, which is now subject to a public comment period before it goes into force, echoed their views.

“Commenters requested guidance as to whether financial services includes banking,” the Treasury Department said, referring to the banking industry. “The Treasury Department and the IRS agree with such commenters [that] financial services should be more narrowly interpreted here.”

The department then concluded that its interpretation “limits the definition of financial services to services typically performed by financial advisers and investment bankers…This includes services provided by financial advisers, investment bankers, wealth planners, and retirement advisers and other similar professionals, but does not include taking deposits or making loans.”

Tax attorney David Miller of the Proskauer law firm told Capital & Main: “The interpretation is consistent with denying the flow-through deduction only to labor-intensive industries. Banks tend to be capital, and not labor, intensive.”

“Treasury’s decision delivers a benefit to roughly 2,000 banks around the country that qualify as S corporations,” said University of Chicago tax law professor Daniel Hemel. “It’s a safe bet that most of the S corporation shareholders benefited by today’s decision will fall into the upper reaches of the top one percent — not many middle-class folks own a bank. The notion that ‘financial services’ excludes banking should be quite a surprise to members of the House Financial Services Committee, which thought that it had jurisdiction over banking.”

Hemel calculated that banks would end up reaping a big payout from the interpretation.

“If you assume a return on assets of around one percent and S corporation bank assets in the range of $400 billion, then the move reduces the total tax liability of S corporation bank shareholders by $300 million per year for 2018 through 2025,” he said. “We’re talking about something like $2.5 billion total. Small in comparison to the magnitude of the rest of the December 2017 giveaway, but $2.5 billion isn’t chump change.”

Steve Rosenthal of the Urban Institute said that while the Treasury Department fine print explicitly solidifies the tax cut for bankers, he said he believes the interpretation does not contradict congressional intent.

“I thought Congress gave away the house in the legislation, and I spoke to Hill staffers who said subchapter S banks are going to get a 20 percent deduction, and so I don’t think the new Treasury rule runs contrary to what Congress wanted,” he told Capital & Main. “This is definitely a huge giveaway — I just think it was Congress that did the original giveaway.”

Why would an American billionaire’s floating mansion moored at a northern Ohio dock be registered in an exotic Caribbean archipelago?

When someone untied a yacht owned by U.S. Secretary of Education Betsy DeVos’s family, Fox News portrayed the episode as an illustration of uncouth anti-Trump sentiment. The yacht’s foreign flag, though, was an illustration of how an allegedly “America First” administration is chock-full of moguls who have eagerly stashed their wealth offshore — as long as doing so means avoiding taxes, regulations, transparency requirements and domestic employment laws.

We already know that Transportation Secretary Elaine Chao’s family shipping consortium routes its business through the Marshall Islands — a notoriously secretive tax haven. Federal records also detail how Trump’s Commerce Secretary Wilbur Ross, Securities and Exchange Commission Chairman Jay Clayton and Federal Reserve board appointee Randal Quarlesheld parts of their personal fortunes in investments based in the Cayman Islands, which are not necessarily required to adhere to America’s domestic financial regulations.

Now there’s Betsy DeVos, one of the heirs of Amway’s multi-level marketing empire. When her family’s 164-foot yacht was untied from a Huron, Ohio dock, it was flying a flag of the Cayman Islands, where VesselTracker says the yacht is registered. According to federal records, the yacht is owned by RDV International Marine, which is an affiliate of the company that controls the DeVos family’s fortune.

A “flag of convenience” allows American yacht owners to effectively characterize themselves as foreigners for tax purposes.

Betsy DeVos did not respond to Capital & Main’s questions about her family’s Cayman-registered yacht — and the larger question about foreign yachts was never deeply explored during the 2012 kerfuffle over the foreign flags on Mitt Romney’s boat. Interviews with maritime attorneys suggest it is a scheme that allows wealthy Americans to feign foreign status — and glean the lucrative benefits offered by offshore tax havens.

When buying a vessel or cruising in U.S. waters, American yacht owners like the DeVoses could face state sales or use taxes. However, registering a yacht in a locale like the Caymans — under what has come to be known as a “flag of convenience” — allows those American yacht owners to effectively characterize themselves as foreigners for tax purposes, thereby avoiding the obligation of paying the standard sales and use levies, while enjoying police and Coast Guard services during times their vessels are untied.

“If you want to come in and use the waters of a given state of the United States, the question is, how can you insulate yourself from getting hit for the use tax?” maritime attorney Michael T. Moore told Capital & Main. “The answer is close and register offshore. If you close and register offshore, you aren’t subject to either a sales or a use tax. You are simply visiting the United States, and you are visiting under a privilege that is granted to certain countries in the world under what is called a cruising permit. Those countries grant the privilege to U.S. flagged vessels, and the United States offers that reciprocal right to vessels flagged by those countries. In practice, it means the permit allows you to go from port to port in different states without having to officially make entry and pay taxes to the states of the ports you visit.”

Other incentives for yacht owners to register offshore include lower labor costs and the potential to avoid stricter inspection and safety standards required for U.S.-registered vessels.

DeVos’s yacht, the SeaQuest, is reportedly one of 10 in the family’s fleet and worth $40 million. If the vessel were registered in, say, Grand Rapids, Michigan — the state where RDV is located and that has in the past made an effort to compel yacht owners to pay use taxes — the SeaQuest would likely be subject to Michigan’s six percent use tax. That would require the DeVos empire to cough up about $2.4 million — public revenues that help finance the kind of police services that the DeVos yacht crew called when the boat was untied. And yet with the Cayman flag fluttering on its deck, the family can avoid the levy even as it cruises the Great Lakes.

Another incentive for yacht owners to register offshore is the potential to avoid stricter inspection and safety standards required for U.S.-registered vessels of a certain size.

“If someone is buying a boat that is above 300 gross tons but below 500 gross tons, getting registered offshore means they can avoid being subject to U.S. Coast Guard inspection and certification requirements as either a ‘seagoing motor vessel’ or a ‘passenger vessel,’” said maritime attorney Mark J. Buhler. “The most commonly used offshore yacht registries have comprehensive large yacht safety codes that were specifically developed for large yachts, whereas the U.S. Coast Guard regulations and inspection requirements applicable to ‘seagoing motor vessels’ or ‘passenger vessels’ were created many years ago, principally for vessels engaged in trade, and not really having large yachts in mind. Those requirements do not translate well to yachts, and most yachts are simply not designed or built to those particular standards.”

In a 2009 presentation to the American Bar Association, Buhler said that yacht owners who register their vessels offshore may also be seeking “a level of anonymity not available in the U.S.” — a reference to how offshore jurisdictions like the Caymans require less transparency in their corporate disclosures. Buhler noted that “some tax-free countries do not require any financial reporting” and added that such owners may also be aiming “to avoid liability for certain U.S. legal obligations to crew members.”

Offshore registration can also reduce labor costs.

“The reason otherwise red-blooded American yachts fly non-American flags has little to do with political sentiment, and a whole lot to do with tax and employment laws,” wrote Kevin Koenig, a former Goldman Sachs analyst, in a 2011 issue of Power & Motoryacht magazine. “From a tax perspective, the U.S. government views an American working as a deckhand on a U.S.-flagged megayacht cruising off of St. Tropez no differently than it views an insurance salesman plying his trade in Topeka—that is to say, a yacht flying the American flag is, essentially, U.S. soil no matter where she is located.”

Koenig added: “The financial consequences of this view can be major for owners who choose to register in America because they are constrained to account for U.S. taxes when paying the crewmember. With Social Security and unemployment taxes what they are, this often means paying an American crewmember twice as much as say, an equally qualified Australian who is exempt from U.S. taxes but who the owner could only hire were his boat registered in a more lenient, foreign-flag state.”

That sentiment was echoed by Miami maritime lawyer David Neblett.

“If you have a U.S. flag vessel, you fall under U.S. law in crewing it,” Neblett told Grand Cayman Magazine in 2015. “You have to have workers’ compensation insurance for each of them. There’s a big savings to hiring your crew outside the U.S…Tax benefits, privacy, liability, crewing requirements, all these are good reasons for our high-net-worth clients to register offshore.”

The Cayman Islands in particular is well positioned to exploit these loopholes. A 2008 Government Accountability Office report found that wealthy Americans “can minimize their U.S. tax obligations by using Cayman Islands entities to defer U.S. taxes on foreign income,” and also warned that some conduct “financial activity in the Cayman Islands in an attempt to avoid discovery and prosecution of illegal activity by the United States.”

Boosters of the Caymans have boasted that such qualities could extend to yacht owners. As Grand Cayman Magazine explained: “Being a place where wealthy foreign yacht owners register their sea-going palaces offers many of the same economic advantages to the Cayman Islands as the presence of offshore banking facilities do.”

Not surprisingly, the International Consortium of Investigative Journalists last year found, the law firm at the center of the Paradise Papers scandal “has a big business in registering yachts, particularly in the Cayman Islands, where it has set up offshore companies that claim ownership of dozens of yachts and ships.”

A case in Europe spotlighted how places like the Caymans can be used to avoid taxes: In 2012, Italian authorities charged a Formula One racing mogul for allegedly using a Cayman-based shell company and yacht as a vehicle to avoid paying required taxes.

While there hasn’t been any move in Congress to try to crack down on offshore yacht tax schemes, states have been racing to throw more money at yacht owners: In recent years New York, New Jersey and Florida have been competing to slash taxes on yacht purchases, and to incentivize purchasers to register their yachts in-state.

Proponents theorize that the benefits will ultimately trickle down to workers in the boat manufacturing industry — but considering the tax shenanigans surrounding yachts, that’s no sure thing. The only ironclad guarantee is that the big winners in a race to cut taxes will be magnates like the DeVoses, who have the financial wherewithal to buy the luxury vessels in the first place.

Hotel Workers Back New Law Ending Secrecy in Harassment Cases

Non-disclosure agreements have become a target for #MeToo advocates, since they bar women from discussing their stories of workplace sexual harassment. Proposed California legislation could change that.

Non-disclosure agreements ensure silence at the settlement stage of litigation, but mandatory arbitration agreements black out news of workplace disputes from the get-go.

More than a year after the settlement of a sexual harassment case against the Long Beach Renaissance Hotel, the alleged harasser, a banquet supervisor, is reportedly still employed at the 374-room downtown hotel — while the two women who brought the suit are gone, according to sources familiar with the hotel’s staffing.

It’s hard to know what caused the two women—a lobby attendant and a banquet server—to leave their jobs because they aren’t talking about it. Worker advocates believe a non-disclosure agreement is keeping them silent, and have set their sights on state legislation that would prevent employees who experience workplace harassment from having to keep quiet about their experience.

One of the two women who filed the lawsuit, Teresa Evangelista, stood mutely before a panel of lawmakers during the public comment period at a recent legislative hearing on sexual harassment held in Los Angeles. Her former co-worker, Guadalupe King, who still works as a banquet server at the hotel, appeared by her side and speculated as to the reason for her silence.

“I have to assume that there is a silence clause in the settlement agreement” [between Evangelista and the Renaissance], said King, 55, who has worked at the hotel for 19 years. King said she would like to see a ban on such clauses.

King is not alone. Non-disclosure agreements have become a target for #MeToo advocates, including former Fox News anchor Gretchen Carlson, who settled confidentially with the network’s parent company after accusing the cable news channel’s late chair and CEO, Roger Ailes, of sexual harassment.

While much of the media attention has been focused on the Weinsteins, Moonveses and others who allegedly preyed on professional women, low-wage service workers like Evangelista are especially vulnerable to harassment, say advocates. Many hospitality workers are immigrants and have limited English, and they often work in isolation cleaning hotel rooms. Indeed, almost 60 percent say they have experienced harassment by hotel guests, according to a 2016 survey of about 500 hotel and casino workers, conducted by UNITE-HERE Local 1, a large Chicago hospitality union.

Michael Morrison, Evangelista’s attorney, would not confirm whether his client had signed a non-disclosure agreement. But he said he supports a bill, sponsored by California state Senator Connie Leyva (D-Chino), which would ban non-disclosure agreements that prevent harassment victims from talking about the facts of their case. Senate Bill 820, which passed through the State Assembly’s judiciary committee in early July, would apply to cases of sexual assault, sex discrimination and sexual harassment. The bill requires approval by the full Assembly and Senate, along with the governor’s signature, according to an aide to Leyva.

Jeffrey W. Cowan, a Los Angeles attorney who represents plaintiffs in sexual harassment cases, calls non-disclosure agreements that gag harassment victims “a blight on the legal system” that often interferes with his ability to gather evidence for cases.

Such a bill “will go a long way toward ensuring that trials and discrimination claims are an effective search for truth, and that there is accountability for victims of unlawful discrimination in the workplace,” he said. The law would allow settlement amounts to remain confidential.

The California Chamber of Commerce sees the law differently. Removing confidentiality provisions from settlement agreements will “expose employers to a public presumption of guilt” regardless of the merits of a particular case, according to a letter the Chamber and nine other employer organizations sent to the Assembly judiciary committee on June 26. “SB 820 will drive employers to fight these cases in court instead of resulting in an early resolution.” The League of California Cities also signed the letter opposing the law, which would cover public employers, as well as private ones.

While non-disclosure agreements ensure silence at the settlement stage, mandatory arbitration agreements guarantee confidentiality about workplace disputes from the get-go, and are consequently even more problematic, according to Morrison.

“In terms of sexual harassment, nothing has been more devastating to getting information out about harassers than arbitration clauses,” Morrison said. (Another measure under consideration by the California legislature, Assembly Bill 3080, would prohibit employers altogether from requiring workers to sign agreements that force employment disputes into private arbitration proceedings.)

Neither Evangelista, nor her co-plaintiff in the case, Luz Cuevas, signed arbitration agreements and, for that reason, the details of their complaint against the hotel are in the public court documents; some were reported on in the Long Beach Post when the suit was filed two years ago.

In that complaint, Evangelista alleges banquet supervisor David Flores pestered her for dates and subjected her to such demeaning remarks as, “When are we going to go out so I can remove those ‘cobwebs’ that your husband doesn’t remove for you?” She found her sweater on the floor of the men’s restroom covered with semen and was met with laughter and told to forget about it when she told a supervisor, according to the lawsuit.

The case was settled last march and the allegations against Flores and the hotel were never tried in court. The attorneys for the Renaissance, and for Flores, were both reached for this story but declined to comment on behalf of their clients. Flores could not be reached for comment.

Evangelista, a former lobby attendant, also reported being assaulted in 2012, by a hotel engineer who lured her into a remote storage room “by pretending that he needed help retrieving furniture,” according to the complaint. After she reported the incident to a human resources representative, she was told to stay away from her alleged assailant, according to the complaint.

Co-plaintiff Luz Cuevas – also known as Maria Ruiz – accuses Flores in the lawsuit of having repeatedly pressured her for sex. Cuevas reported Flores’ actions to human resources but, according to the complaint filed with the court, no action was taken against him.

Both women obtained temporary restraining orders against Flores several months prior to filing the 2016 lawsuit in court. “The fact that our legal action may embarrass him and may end up costing him his job could bring him to rage. I fear for my personal safety,” Cuevas stated in a request for a restraining order that was filed with the Los Angeles Superior Court in 2016.

The Renaissance is owned by Sunstone Hotel Investors Inc., a Maryland-based real estate investment trust, and managed by Marriott International Inc.

Last week, after working a brunch at the hotel and still in her black uniform, Guadalupe King sat down in a union hall to talk about why she decided to speak about the settled lawsuit at the Renaissance, which is the target of a union organizing drive by UNITE HERE. (Disclosure: The union local is a financial supporter of this website.) She said she was upset that her former co-workers had left the hotel while the alleged harasser—who sometimes acts as her supervisor—remains.

She also wanted to see policy changes that would affect hotel workers more broadly. King compared the imposition of non-disclosure agreements on sexual harassment victims to a parent’s silencing of a child with a piece of candy after she has been sexually assaulted by a family member. “Everybody should be free to speak about their experience,” she said.

Assembly Bill 3081 is one of several #MeToo-inspired laws proposed by California legislators.

Sandra Pezqueda has racked up some victories recently, but she is not resting easy.

She made the unlikely journey from dishwasher to Time magazine cover story, which featured Pezqueda in Time‘s 2017 Person of the Year issue for her role in fighting sexual harassment at the Terranea Resort, a luxury seaside hotel in Rancho Palos Verdes. In April she settled a lawsuit for $250,000 against Excellent Maintenance Service, the staffing agency that placed her in the Terranea’s kitchen.

Pezqueda, who is 38 and a native of Mexico, spent Monday evening at a legislative committee hearing in Los Angeles, advocating for a law that would hold companies like the Terranea accountable for the actions of their contractors and temporary workers.

“Many women who work in the hotel industry do not have a voice at all. When they experience something bad, they are afraid to speak up because they might be blamed.”

“I am proud that I can continue to advocate on behalf of other women,” said the poised Pezqueda in Spanish through an interpreter. She described “one of the worst experiences of her life” – a male supervisor who worked for the staffing agency tried to kiss Pezqueda and pressure her for sex. Unlike the vast majority of women who face harassment in the workplace, Pezqueda took action. But her complaint to hotel management led to her firing in 2016, she said.

A sympathetic group of seven California state Assembly members listened to Pezqueda’s testimony and that of three other service industry workers who spoke about some of the barriers that keep many sexual harassment victims in an industry largely staffed by immigrant workers from speaking out.

The chair of the California State Select Committee on Women in the Workforce, Assemblywoman Lorena Gonzalez Fletcher, has been combating sexual harassment since long before the #MeToo movement gained steam. The San Diego-based legislator spearheaded a 2016 bill to address sexual violence against janitorial workers after viewing a 2015 Frontline documentary, “Rape on the Night Shift,” that she says shocked her into action.

The recent media spotlight on harassment in Sacramento and Hollywood has created an opportunity to address “what happens every single day for low-wage workers who, in many ways, are in a more precarious situation” than their counterparts in higher-paid occupations, Gonzalez Fletcher said after the packed hearing, which was held in the basement of the union hall belonging to UNITE HERE Local 11. (Disclosure: The union is a financial supporter of this website.)

Juana Melara and Sandra Pezqueda. (Photo: Joanne Kim)

Assembly Bill 3081, sponsored by Fletcher Gonzalez, would hold companies like the Terranea responsible for sexual harassment of contract workers, and is one of a series of #MeToo-inspired bills in the California legislature this year, some of which have drawn strong opposition from business groups.

The Terranea’s management told the Los Angeles Times that Pezqueda’s lawsuit and allegations “have nothing to do with” the resort. Excellent Maintenance Service reached a settlement with Pezqueda, but has denied wrongdoing.

Gonzalez Fletcher, the daughter of a former farmworker and a nurse, introduced another controversial bill earlier this year, Assembly Bill 3080, which would prohibit employers from requiring workers to sign agreements that force employment disputes into private arbitration proceedings. Mandatory arbitration agreements have proliferated over the last two decades and now cover 60 million workers nationwide, according to a study by the Economic Policy Institute.

The California Chamber of Commerce has labeled the bill banning forced arbitration a “job killer” that could “significantly expand employment litigation.”

The Chamber has also opposed AB 3081, which labor advocates are calling “Sandra’s Law,” arguing that the liability for sexual harassment should rest with the contractor and not with the employer.

A larger theme underscored the two-hour Monday hearing, which is the powerlessness of women workers in the service industry that, the hearing’s participants said, could be remedied by unionization and diversity in hiring at all levels of companies.

“Only when we have gender balance at every level with every organization will we see sexual harassment really begin to disappear,” said the Feminist Majority Foundation’s executive director, Kathy Spillar, who was one of several experts to speak at the hearing.

Juana Melara, a Westin Long Beach housekeeper who was also featured in the Time magazine 2017 Person of the Year issue for speaking up about sexual harassment, addressed a similar issue. “Many women who work in the hotel industry do not have a voice at all,” she said. “When they experience something bad, they are afraid to speak up because they might be blamed.”

Melara recently helped negotiate a yet-to-be-ratified, first union contract with the Westin Long Beach that will provide “panic buttons” to housekeepers who often work in isolation while cleaning rooms. A legislative requirement that hotels throughout the state provide such buttons to their housekeeping staff members to protect them from sexual assault was also the subject of discussion on Monday.

Is Tesla a Promise or a Problem for Rebuilding the Middle Class?

Co-published by Fast Company
In Robert Jimenez’s day, California was second only to Michigan in auto manufacturing, and homeownership was a much more attainable aspiration. “We are what’s left of the middle class,” he says.

Can an industrial giant like Tesla be a factory for middle-class jobs?

Both Michael Sanchez and Robert Jimenez owe their fortunes to California’s auto industry. But their personal and professional trajectories couldn’t be more different.

Sanchez, a Tesla assembly line worker, is on a leave of absence due to chronic back pain from a repetitive-motion injury that sidelined him two years ago. He and his wife, Mona Liza Sanchez, rent a “very old broken-down” house in Hayward. Homeownership in Northern California’s pricey East Bay is not on his radar, even in this blue-collar suburb south of Oakland.

They lavish their affections on “our babies,” by which Sanchez, 39, means their cats and dogs. Their economic situation has caused them to delay starting a family.

Note: “Middle income” is defined as having household income that is two-thirds to twice the median household income for the county of residence.

Meanwhile, Jimenez, who retired in 2005 after 35 years at a Chrysler-owned supplier in downtown Los Angeles, owns a house in Montebello, just east of Los Angeles, and put his two children through college. His career flourished during the auto industry’s golden age, which began after World War II and was nourished by the federal government’s massive investment in road building. In Jimenez’s day, California was second only to Michigan in auto manufacturing, and homeownership was a much more attainable aspiration. “We are what’s left of the middle class,” he says.

Elon Musk’s labor intransigence could upend a decades-old social contract
between employers and workers.

Investment analysts scrutinized Tesla’s announcement, made earlier this month, that it met its 2018 production goals for the mass market Model 3, after the company blew past deadline after deadline. But another critical question looms for taxpayers who, according to a 2015 Los Angeles Times analysis, have invested nearly $5 billion in public aid to Musk’s companies. Can an industrial giant like Tesla be a factory for middle-class jobs – or has the very nature of manufacturing irrevocably changed since the 1960s, when Robert Jimenez first went to work in the auto industry?

Back then, more than 60 percent of California households could be considered middle income, according to Sara Kimberlin, senior policy analyst with the non-profit California Budget and Policy Center. By 2016, that number had dipped to below 50 percent. Some of the decline can be attributed to the loss of thousands of manufacturing jobs, many of them high-paying union jobs, like the ones that afforded Jimenez and his family a piece of the California Dream.

The 2010 opening of the Tesla plant in a shuttered Fremont auto factory gave hope to Sanchez, who, unlike Jimenez, went to school to study the auto trade. He was hired initially as a temp for $17 per hour in 2012. It took him three-and-a half years to earn his first raise, a feat he says he accomplished by sending emails to Musk, the human resources department and “everybody in between.” When he injured himself, Sanchez was making “$20 per hour and change” on the night shift. The starting wage at Tesla has since been raised to $19 per hour.

A successful California union drive could “serve as a model for jump-starting the middle class.”

By contrast, Sanchez’s wife, who is 40, had earned $34 per hour after five years of working on the assembly line at the same plant when it was unionized, according to Sanchez. She left the Fremont factory in 2009, when it closed. It had been operated by Toyota and General Motors in a joint venture.

An overriding concern of Michael Sanchez has been Tesla’s alleged lack of attention to safety. Sanchez worked on the luxury Model X’s underbody with his arms always above his shoulders, his neck straining as he looked up. Tesla should aim to “[make] it where people’s bodies are not going to break down as time goes on,” he says.

Sanchez fell back on a tried-and-true method of raising workplace standards. In the summer of 2016, he joined the United Auto Workers’ effort to unionize the Fremont factory, which currently employs 10,000 people and is California’s sole auto manufacturer. Plant safety is one of the UAW’s chief organizing issues at Tesla, which has received media attention for its higher than average rates of serious injuries, and for injury-reporting lapses, which the company disputes. A successful union drive could also “serve as a model for jump-starting the middle class” in California, according to Harley Shaiken, a University of California, Berkeley professor who specializes in labor and education.

“Imagine if Tesla goes under tomorrow — do you want to lose your job and lose your investment?”

In fact, labor advocates have long argued that unions benefit workers more broadly. A recent study, published by economists Henry Farber, Dan Herbst, Ilyana Kziemko and Suresh Naidu, draws from early polling data to show that high rates of unionization lead to lower levels of income inequality across the board. Shaiken also claims that the benefits of unionization would not just accrue to the workforce but to the company as well. A union could ensure that workers “speak more freely, more openly, now making things more effective in the production process,” he says.

Musk has not greeted the union effort warmly. In May, he wrote on Twitter: “UAW destroyed once great US auto industry & everyone knows it.” He also tweeted that those who joined the union might “give up stock options for nothing,” referring to an employee benefit currently available to all Tesla workers: an equity grant, which vests over a four-year period, and stock they can buy at a discount. The UAW charged that Musk’s statement was an act of retaliation against employees for union organizing and a violation of labor law, in a complaint filed with the National Labor Relations Board in May.

Source: Union Membership and Coverage Database, available at www.unionstats.com, compiled from the US Census Bureau’s Current Population Survey by economists Barry Hirsch of Georgia State University andDavid Macpherson of Trinity University.

Peter Leyden runs Reinvent, a media company that moderates roundtables with tech entrepreneurs and political leaders concerned about sustainability and the future of work. On the matter of compensation, Leyden suggests that having employees hold an equity stake in the company offers “a different way to think about your involvement at the company” that is “more geared toward the future” than bargaining for wage increases. The growing value of Tesla’s stock, Musk argued in a blog post to employees last year, can make its workers wealthier than their counterparts in unionized plants.

The path to the middle class is not as clear as it once was. The UAW has recently lost votes in right-to-work Tennessee and Mississippi.

Yet Jon Luskin, a certified financial planner at Define Financial, based in San Diego, believes employees are better off with higher wages than stocks. He urges Tesla employees to sell their stocks as soon as they vest. “Imagine if Tesla goes under tomorrow — do you want to lose your job and lose your investment?”

Shaiken says employees should not have to choose between unionization and having a stake in the company’s success. He points out that workers at General Motors, which is covered by a union contract, took home almost $12,000 extra this year due to a profit-sharing deal with the company.

Early last year Michael Sanchez was leafleting the Fremont factory as a volunteer UAW organizer when security guards ordered him to leave. One guard told him that “unions are worthless,” according to testimony that he provided to an administrative law judge during a trial before an NLRB-appointed judge in June, the San Francisco Chronicle reported. The NLRB’s general counsel says the company violated federal law that protects workers’ rights to act collectively. Hearings on the matter are expected to resume in September.

“If you’ve got a kid and mortgage and car payment, you need a predictable income.
That’s what unions do.”

“This has all the hallmarks of 1930s resistance, in the 21st-century context,” says Shaiken. He adds that such resistance could have “real consequences” beyond Tesla, upending a decades-old social contract between employers and workers.

“No one at Tesla has ever, or will ever, have any action taken against them based on their feelings on unionization,” Tesla said in a statement to the NLRB last year.

Of course, the path to the middle class that Robert Jimenez helped forge is not as clear as it once was. When he helped organize the Chrysler-owned auto parts supplier in 1968, union membership in the state stood at about 32 percent. Last year, only 16 percent of California’s workforce belonged to unions, and the union membership rate is far lower in the private sector. The UAW has recently lost votes in right-to-work Tennessee and Mississippi.

Peter Leyden characterizes unions as appropriate for 20th-century mass production, but anachronistic in contemporary high-tech manufacturing. He envisions a “new model” of labor-management relations that he describes as “flexible, adaptable, risk-taking” and “in sync with the entrepreneurial and innovative instincts of the people running the companies.”

But Nelson Lichtenstein, a UC Santa Barbara historian, argues that Musk is shifting risk onto workers rather than encouraging experimentation, since employees who feel less secure in their jobs will be reluctant to speak up. “If you’ve got a kid and mortgage and car payment, you need a predictable income. That’s what unions do,” he adds.

It is Musk and other union critics, says Shaiken, who promote false and outdated notions of auto unions, which often work collaboratively with the companies they represent. As an example, he cites the former General Motors and Toyota joint venture that previously ran the Fremont plant, where “constant improvement was the goal.” Tesla, he claims, is pursuing a “hard ideological argument rather than a pragmatic, high-tech way” of identifying how to optimize the production process and valuing workers at the same time.

“A competitive, profitable Tesla and a union are not incompatible, but that’s up to the workers there,” he says.

The ‘Amazon Tax’ Ruling: Disrupting the Disruptors?

Amazon’s continuous resistance to collecting sales taxes made it the first major American company to build its business based on tax avoidance. Contrary to popular belief, the company is still resisting today.

Amazon gathers sales taxes on products it manufactures and sells directly, but doesn’t collect on behalf of third-party businesses that use its marketplace.

On June 21, the Supreme Court changed the face of online retail, upholding a South Dakota law requiring any business making at least 200 transactions or $100,000 in sales to collect state sales taxes, even if it has no physical presence within a state’s borders. This ends a structural pricing advantage that made the Internet the world’s largest duty-free shop, at the expense of every restaurant, clothier, hardware store and pharmacy whose e-commerce rivals could always charge less.

The decision came too late for brick-and-mortar businesses wiped off the map in the retail apocalypse. It came too late for state and local governments losing between $8 billion and $26 billion per year in never-collected sales taxes — money that could have built roads, improved schools or bolstered the safety net. But now that it’s here, states have choices to make.

The Supreme Court merely validated South Dakota’s law; other states must pass their own legislation to enable sales tax parity between online and offline businesses. And given the burden of complying with state tax laws, it seems at first blush tricky to design something that allows smaller retailers to still compete with the big boys.

But one California official has a solution that she’s been advocating for several years. It would maximize revenue for states, reduce the load on small sellers, and create a truly level playing field. However, Board of Equalization member Fiona Ma’s strategy requires that California join the tiny number of states willing to stand up to the 800-pound gorilla of online shopping, the source of nearly half of all e-commerce sales: Amazon.

Amazon often receives plaudits for voluntarily collecting sales tax in all 45 states that have one. But such praise ignores Amazon’s scofflaw history. “Amazon was the first major American company that built its business based on tax avoidance,” said Oren Teicher, CEO of the American Booksellers Association, referring to the company’s continuous resistance to collecting sales taxes. Contrary to popular belief, the company is still resisting today.

Jeff Bezos notes that third-party sales represent more than half of the total units sold on Amazon.

While Amazon gathers sales taxes on products it manufactures and sells directly, it doesn’t collect on behalf of third-party businesses that use its marketplace. (Technically, online shoppers are supposed to report untaxed items and pay the taxes; in reality, nobody does.) This may sound like a minor point, but in his annual letter to investors, CEO Jeff Bezos notes that third-party sales represent more than half of the total units sold on Amazon.

Amazon offers essentially no tax assistance to third-party sellers, save for a couple of dry documents on its website. Third-party Amazon merchants can theoretically sign up for tax calculation services, but they must still register with states and file taxes on their own, in potentially thousands of jurisdictions. When states tried to get third-party sellers to collect, Amazon didn’t want any involvement with the effort and refused to publicize it.

The American Booksellers Association recently described the Amazon marketplace as the “Wild West.” Third-party sales on the website doubled in volume from 2014 to 2016. The marketplace puts legitimate, authorized re-sellers and brick-and-mortar retailers alongside counterfeiters, scavengers who re-sell liquidated inventory, and Chinese and Indian importers. It’s nearly impossible for consumers to tell the difference. Thin profit margins and cutthroat practices pit sellers against each other; a merchant who decides to collect sales taxes will lose out to tax-avoiding rivals.

With Amazon reluctant to police its marketplace, such tax avoidance is rampant. A 2017 Government Accountability Office report estimated that third-party sellers collect tax on only 14 to 33 percent of all sales. Sellers have basically followed Amazon’s tax-avoidance path, determined to run afoul of the law.

There’s a simple fix to all of this, says the Board of Equalization’s Fiona Ma: ‘Whoever’s collecting the money should collect the sales tax.’

The big winner in all this is Amazon, which reaps large fees from third parties for access to its platform. Amazon typically takes 15 percent of gross third-party sales and sometimes as much as 20 percent, with fees on top of that for handling and shipping through the “Fulfillment by Amazon” network. This revenue pot has grown from $16 billion to $31 billion in just two years, according to Amazon’s financial disclosures. It’s highly likely that Amazon clears more profit than marketplace sellers on their transactions. So Amazon, by proxy, benefits financially from third-party tax avoidance, and the pricing advantage it provides. And, by not collecting tax, Amazon even avoids liability for mistakes made by third-party sellers that could trigger audits.

There’s a simple fix to all of this, as Fiona Ma stated plainly to me: “Whoever’s collecting the money should collect the sales tax.”

Ma, who is likely to become California’s next treasurer, spent years working on state tax issues as an Assemblywoman. In May 2016 she was serving on the Board of Equalization, which at the time oversaw state sales taxes. A Delaware business that used Fulfillment by Amazon (FBA) services told her it only learned it was responsible for sales tax collection after receiving a bill for three years of back taxes.

Amazon VP on the company’s duty to collect sales taxes: ‘Well, if the state of California forces us to, I guess we can.’

“I found out that third-party sellers don’t actually know they should be collecting and remitting taxes to California,” Ma said. And while researching the matter, she learned that through its website and FBA, Amazon handled storage, packaging, payment processing, logistics, delivery, customer service and returns. That Amazon wouldn’t also collect the sales tax seemed odd.

In January 2017, Ma flew to Seattle to meet with Kurt Lamp, Amazon’s Vice President of State Tax and Tax Operations. She began by asking Lamp how third-party sellers were supposed to know about sales tax collection. “He said they sign an agreement and there’s a website,” she recalled. “I said, ‘Are you sure everyone’s doing this?’ He said, ‘We don’t know — we tell them to go to the website.’”

Ma found Amazon’s reticence alarming. “I said come on guys, that’s ridiculous, why can’t you collect the sales tax? You’re dealing with everything on the customer level. He said, ‘Well, if the state of California forces us to, I guess we can.’”

Some state officials put the annual amount of revenue lost to uncollected third-party sales taxes at $1.8 billion.

Two months later, a report from a news publication, The Capitol Forum, estimated that California loses $431 million a year on third-party seller tax avoidance. Other state officials have put the number even higher: $1.8 billion in lost revenue every year. Ma couldn’t believe that Amazon’s attitude was essentially, Who cares?

Last August, Ma wrote to state Cabinet Secretary Keely Bosler, asking that Governor Jerry Brown demand Amazon collect sales tax on all orders within the state, requiring California to audit only one company, Amazon, instead of thousands of third-party sellers. This would also pull in millions of transactions that wouldn’t otherwise be captured; just 20,000 third-party sellers generated over $1,000,000 in revenue last year, according to Amazon, and most states wouldn’t audit businesses smaller than that. Plus, taxing all sales would create more equal treatment between Amazon and the state’s local businesses, which create far more jobs and property taxes than Amazon’s handful of warehouses.

Other states have gone this route. In Washington and Pennsylvania, Amazon and other platforms are responsible for collecting all relevant taxes on third-party sales. A similar law in Minnesota kicked in July 1, after the Supreme Court decision.

Tellingly, Amazon does not charge sellers anything for this service in Washington and Pennsylvania. The tax itself is just a pass-through to customers, and since Amazon already collects on its own purchases, collecting for third parties represents merely flipping a switch. “They have all the infrastructure, it can’t be very difficult to do,” said Darien Shanske, a law professor with the University of California, Davis.

Amazon has argued that the company is prevented from collecting on behalf of third parties unless states pass marketplace laws like Washington’s or Pennsylvania’s.

But California has not taken Ma’s advice and forced Amazon’s hand. In fact, over the past year the state has become more aggressive against third-party sellers.

Last July responsibility for sales tax oversight shifted to the California Department of Tax and Fee Administration (CDTFA). That department has been threatening third-party sellers with fines and even prison time if they didn’t start collecting sales tax. “Operating unlawfully you can be prosecuted,” reads one email to an Amazon seller, who asked that his name be withheld. The back taxes demanded would bankrupt his business, the seller claimed. “The whole thing is taking a really hard toll on me,” he said. “It’s stressful, I wake up in the night, I cannot get back to sleep.”

CDTFA spokesperson Paul Cambra would not tell Capital & Main how many threats like this have gone out, but the Sacramento Beeput the total at 2,500. Cambra admitted that the agency has not referred any Amazon sellers for criminal prosecution. But several posters on Amazon-seller message boards have complained and posted communications from the state. This January, the CDTFA sent letters to third-party sellers, citing sections of the state tax code to prove that they were liable for collection. A header in the letter, from November 2017, reads “Amazon Fulfillment Services, Inc. and Affiliates.”

Amazon has willingly handed over third-party seller data to states like Rhode Island and Massachusetts — helping them target its own marketplace partners.

Paul Rafelson, an attorney for third-party sellers, believes this indicates that Amazon drafted or supplied content for the letter. Cambra responded that the letter “was authored by CDTFA staff members” and “at no point was this letter reviewed or edited by outside individuals or entities.” That doesn’t totally answer whether Amazon had initial involvement in the drafting. Cambra added that the header “was inadvertently left from a previous document.” CDTFA denied a Freedom of Information Act request to obtain communications between its office and Amazon, terming it “confidential taxpayer information.”

Amazon spokeswoman Jill Kerr also said that the company “had nothing to do with that communication. Amazon did not play any role in that.”

In March Rafelson started the Online Merchants Guild, an association advocating for e-commerce sellers. He argues that registering with states and remitting dozens of income tax returns overly burdens small businesses, and that having Amazon collect is the simplest remedy. But he hasn’t had much luck convincing state officials. “When I go to a state like Massachusetts, Illinois, New York and say, ‘You can get Amazon to collect,’ they’re fighting me like I’m the problem,” he said. “Nobody wants to tick off Amazon.”

Amazon has even willingly handed over third-party seller data to states like Rhode Island and Massachusetts, helping them target its own marketplace partners. “It’s striking to me as a citizen that your state’s tax enforcement resources would be deployed [to] going after small fry instead of doing the obvious thing of getting Amazon to collect sales tax,” said Stacy Mitchell of the Institute for Local Self-Reliance, a frequent Amazon critic.

Ma finds the aggressive enforcement of small sellers, when Amazon controls practically every aspect of the transactions, to be unconscionable. But why has California been so reluctant to force Amazon’s hand? “Number one,” Ma explained, “the governor’s office has been trying to woo Amazon into putting a headquarters here. I’ve been pushing and they haven’t wanted to do anything up front.” Indeed, Los Angeles is on the shortlist for the massive HQ2 project.

California’s legislature must author a solution, after the Supreme Court ruling, if the state intends to collect online sales taxes. But Ma wonders whether it will melt under pressure as well. “Republicans are not going to want to do it, and Democrats would have to go against Amazon,” she said. “No one wants to do anything in an election year to stick their neck out.”

A spokesperson for Senate President pro Tem Toni Atkins said her chamber was “looking into next steps” on the issue. Assembly Speaker Anthony Rendon’s office didn’t respond to requests for comment.

This dynamic of apparent subservience to Amazon has played out throughout the country. When Amazon first agreed to collect sales tax, it cut deals with states to delaycollection or forgive back taxes, dangling warehouses and jobs as incentives. Mississippi’s Department of Revenue admitted to a local TV news station last year that its agreement with Amazon to collect sales tax didn’t cover “any sales made by an independent third-party seller, even though made through the Amazon marketplace.” That enabled one Mississippian, Keith Bennett, to buy a laptop, mouse and bag worth several hundred dollars off Amazon and pay only $1.87 in sales tax; the computer sale went through a third-party business that literally named itself “Buy Tax Free.”

Sellers have been the foot soldiers for Amazon in avoiding sales taxes for years. Now Amazon has abandoned them to fend for themselves against aggressive state governments.

Backroom deals are bound to occur when a giant company with armies of lobbyists intimidates states from implementing simple solutions. Rafelson, the attorney for third-party sellers, called their plight ridiculous. “It’s like saying if you go to a Walmart in Georgia and buy a Coke, it’s not Walmart’s responsibility to collect the sales tax, it’s Coke’s!”

That’s not to say sellers are blameless. Many willingly followed Amazon’s model of avoiding sales tax to gain pricing advantage over rivals. “Sellers have been the foot soldiers for Amazon on this issue for years and years,” said Stacy Mitchell. Now Amazon has effectively abandoned them to fend for themselves against aggressive state governments. “If you sleep with thieves, they may well steal from you,” Mitchell said.

Only one state, South Carolina, has argued that existing law requires Amazon to collect sales taxes. The state filed a motion in state court, seeking as much as $500 million in uncollected taxes. Amazon is challenging the case, and a hearing is scheduled for November. “Under South Carolina law third parties are not considered sellers but suppliers or consignors; Amazon is the seller,” said Bonnie Swingle, public information director for the South Carolina Department of Revenue.

If South Carolina prevails, other states could potentially seek back taxes from Amazon, creating significant monetary risk, as Amazon has acknowledged in financial disclosures. But states focusing on third parties would relinquish a small fortune, while allowing Amazon to continue to undercut competitors.

Ma has devised an alternative strategy. She’s working with a number of attorneys, including Rafelson, who are considering filing a lawsuit against Amazon on behalf of third-party sellers. But the Supreme Court heard arguments that third-party sellers would suffer from the compliance burden, and dismissed them. Justice Elena Kagan suggested sales tax collection “would be essentially taken over by companies like Amazon… they would do it for all the retailers on their system.” Somebody might want to inform Amazon.

America’s Middle-Class ‘Squeeze’

Today the struggling middle class is finding itself just a short rung above the working poor.

Bowed and vulnerable, with her head perched over the toilet, Alissa Quart was beginning to fully comprehend her precarious economic position.

An established New York-based freelance journalist, she thought of herself as a sturdy member of middle-class America seven and a half years ago, but she was going through a difficult pregnancy and was often too sick to work. “I was retching all the time, and I was watching as I spent my savings down,” she recalls during a recent interview.

Quart saw little potential for circumstances to improve for herself and her husband, another freelance writer, as they looked ahead to the costs of pregnancy, birth and parenthood: “I realized I could join the struggling middle class soon, if I didn’t wake up.” That rung of the middle class is just a small step above the working poor.

Yes, her family was in crisis mode.

She responded by doing something few people facing the personal shame of economic struggles do: She sought out people in similar circumstances around the country and painted an array of reportorial portraits of their troubling, sometimes poignant stories.

The result is her latest book, Squeezed: Why Our Families Can’t Afford America (Ecco/HarperCollins), about women and men whose jobs have been devalued by the evolving American economy. In it, she details their struggles to get by—or to pretend they still can—with stagnant or declining incomes, even as their basic costs surge.

Many of Quart’s subjects are people who would likely have done fine in an earlier era, but who now struggle with deep feelings of failure as they patch over the many holes in their finances. There is the adjunct professor on food stamps; the caregiver of other people’s children who rarely had time to see her own; the Southern California engineer who, after having a child, repeatedly changed professions in search of financial stability, and many others.

For middle-income America, she writes in Squeezed, professional and economic stagnation “is experienced as a great loss, as the end of the mobility and flexibility we saw in our parents’ lives. That mobility is so much a part of the American promise that losing it seems like a deep betrayal.”

Working While Pregnant

In Quart’s book, “middle class” refers to a majority of the upwardly mobile population who, by and large, long believed that if they worked hard and made smart choices, then their children would live better than their parents.

People in middle-class professions—teachers, firefighters, journalists, construction workers, cops and others—certainly never got rich from their work, but they could look forward to a time when they would be fairly comfortable and secure. More important, they rarely feared sinking into poverty.

Economic and professional mobility is so much a part of the American promise that losing it seems like a deep betrayal.

“You aren’t reaching for the stars; you’re reaching for the ceiling,” Quart says. “Now, you’re being punished for it.”

And that punishment comes in many forms, especially for parents. Quart lists the increasing costs of parenting—daycare, childcare, family healthcare and lower incomes, and an additional one just for being a mother. “Employers pay $11,000 less for working mothers starting out than for other women, and $13,000 less than men,” she says.

Quart notes that such discriminatory risks have led friends, acquaintances and interview subjects to hide their pregnancies in the workplace for as long as possible with oversized jackets, loose-fitting sweaters and baggy pants.

And then there is childcare. In New York City, where Quart lives, it is often the greatest single cost for families. Some parents spend one of every $3 in take-home pay for a stranger to look after their kids, Quart discovered.

Economic ‘Prisoners of Love’

Quart’s book explores some of the ways that nurturing professionals are manipulated into working for less than they are worth. “The idea is that these people—nurses, teachers, childcare professionals—will be trapped by feelings of love, and they’ll work for lower wages,” she writes.

While that is a longstanding issue, today it comes with new twists. The ride-sharing company Uber realized that some of these workers desperately needed more money to get by—and that they were great for its brand—so they actively sought to hire teachers, Quart notes. As the brand established itself as a massive moneymaking machine, it made videos highlighting the company’s sociable and responsible teacher-drivers. In Oregon, Uber has even used an emoji showing a stack of books to signal to customers that a driver is also a teacher.

The gig economy is not an arrangement that allows people to survive.
It keeps people in place.

The problem, as Quart makes clear, is that such side hustles rarely come with health care and paid vacations for employees, nor do such gigs provide a way to “transcend their economic circumstances.”

“It is a sort of set-up. It is not an arrangement that allows people to survive,” she says. “They keep people in place.”

While Quart didn’t frame it this way, the prisoner-of-love thesis she examines in the book can be applied to many journalists.

Successful freelance journalists in the 1990s commonly earned $2 per word from magazines that, in many cases, now pay 50 cents. The number of editorial jobs at most of the print publications that still exist are almost universally a fraction of the size they were in the old days. The Los Angeles Times, which has lost nearly two in every three members of its editorial team since 2003, is one of countless examples. And the many digital media jobs that have sprung up almost invariably pay far less and come with weaker job security and fewer, if any, benefits.

Journalists who have stayed in their devalued field have generally done so because they feel their work is crucial to society.

Quart, now the mother of a young daughter, has stabilized her own family’s situation by diversifying. Her soft spot for creating solutions-oriented journalism has been bolstered by writing books and by her role as executive editor of the Economic Hardship Reporting Project.

Co-founded with old-school working-class muckraker and author Barbara Ehrenreich, the EHRP funds journalism focused on the sort of destabilized people Quart’s pregnancy brought her so much closer to. (Disclosure: the EHRP is supporting a small project proposed by this author; also, Alissa Quart is a member of this website’s board of directors.)

Reporting and writing Squeezed proved to be a revelatory experience for Quart and, she says, some of the subjects of the book. In sharing their stories, they came to see the broader context for their struggles, and that they are not failures.

Where does all of this leave the middle class?

“It is a fantasy category that has resonances of the past, but what I’m trying to do is help make that shift for people so they don’t blame themselves and don’t feel stigmatized,” she says. “They can’t own a home. They can’t have a career; they have a different set of jobs.

“I think books like mine are part of this process of getting people to see where we really are.”

For union organizers, the stakes are summed up by Flint, Michigan, the poster child for a city stripped of a robust public sector
and laid bare to privatizers.

The first email arrived a month before the U.S. Supreme Court’s June 27 Janus v. AFSCME decision, which struck a blow against the nation’s public-sector unions. On May 17, all 35,000 teachers in the Los Angeles Unified School District found personally addressed notes concerning their union, United Teachers Los Angeles, titled “UTLA’s new ‘irrevocable’ membership card.” The message had been sent on the district’s computer messaging system.

Sent by “Jami” on behalf of the stridently anti-union Freedom Foundation, the email ominously warned of the “fine print” on UTLA’s new, “Janus-proofed” membership authorization form. “Be aware of UTLA’s financial motivation before granting them the power to garnish your wages indefinitely,” it cautioned before inviting recipients to “pay less” by becoming an agency fee payer. (Agency fees are non-dues moneys collected from all employees to cover the costs of union operations, including contract negotiations, even if the employees don’t belong to union representing their interests.)

“[Janus] is lighting a fire under us, and it’s put us at a crossroads of sorts, where we understand that we have to do things differently.”

“We don’t necessarily believe that just because there are a considerable number of individuals who have not opted out of their union necessarily means that that is their express desire,” explained Mackinac’s vice president of strategic outreach, Lindsay Killen, by phone. “So we want to make sure that we get them the information that they need.”

The emails are just part of the digital and door-to-door campaigns that anti-union groups have in store for California’s government workers. Yet unions have been preparing for Janus for several years and the response from organized labor might represent a paradigm shift that could transform public-sector organizing in the post-Janus world. California has already erupted in a virtual fever of union organizing and membership-building unseen since the public-sector labor movement’s formative heyday in the 1960s and ‘70s.

“It’s basically our new mode of operation,” UTLA’s Strategic Research and Analytics director Grace Regullano explained in a phone call to Capital & Main. “The plan is basically to talk with every single member in our union at some point every year about what the union means, and about recommitting to our union and our fight for public education. … It’s not just that you give us money and we go do the work for you, it’s that we are building power together.”

“This is motivating our union members and leaders to do things that they haven’t done before,” agreed the Los Angeles County Federation of Labor’s organizing director, Chloe Osmer. “[Janus] is lighting a fire under us, and it’s put us at a crossroads of sorts, where I think we understand that because of the attacks on our resources and our budgets, we have to do things differently.”

It’s also paying off. In 2016, 82 percent of UTLA members voted to raise their annual dues by about a third, to $1,000 a year. Though Regullano wouldn’t share specific numbers for UTLA’s ongoing “All In” membership campaign (“to deny the Mackinac Center and the Freedom Foundation a roadmap”), she estimated that organizers had successfully “cut in half” the number of fee-payers that had opted out of joining the union before the campaign.

That jibes with the net membership gains reported around the state by other organizing efforts. Though the campaigns are tailored to the memberships and political culture of each local, to some degree they are all modeled on membership conversations developed by home health care unions after the Supreme Court’s 2014 Harris v. Quinn decision declared unionized caregivers to be only “partial” public employees — and opened them to home visits from paid Freedom Foundation canvassers.

“The home care workers were kind of like the front line for this attack from the Freedom Foundation,” said Osmer. If public sector organizers have an ace in the hole, it may well be the public employees themselves. “The idea is not just, ‘Let’s go out and sign up people to join the union, but let’s identify and recruit new leaders within existing union members and really strengthen our network of member leadership. … How do we do it in a way that really builds long-term capacity and strength for the labor movement?”

The Mackinac Center and Freedom Foundation are betting that unionized workers, now “freed” by the Supreme Court will behave like neoliberal “rational actors” by defecting en masse from dues-paying to free-riding, thereby bleeding the unions. But the recommitment successes California organizers claim to have racked up suggests that the language of the marketplace might be an alien tongue for a workforce in public service.

“People who serve the public are mission-driven,” noted Debra Gabrelle, executive director of San Francisco’s International Federation of Professional and Technical Engineers (IFPTE) Local 21, the union that represents the city and county professionals and technical engineers. “They’re making sure that we’re all safe.” Local 21’s new “Gold Card” sign-up program invites members to recommit to the union by declaring their intention to remain in it and authorize dues deductions — despite the Janus decision. (Disclosure: The union is a financial supporter of this website.)

Local 21 member Anna Roche is a special projects manager for the San Francisco Public Utilities Commission, where she works on climate change-related issues, including the chronic erosion and sea level rise that are threatening San Francisco’s wastewater infrastructure at Ocean Beach. But she began her career in the private sector as an environmental biologist until a stint as a Peace Corps volunteer made it personally impossible for her to return.

“Dealing with clients that only cared about making money and didn’t really have any interest in protecting the environment just wasn’t very fulfilling for me,” she reflected. “I feel a greater sense of pride and fulfillment knowing that the work I’m doing is to keep San Francisco a place that people are proud of and . . . [that] we’re doing important work to protect the city against changes related to climate change.”

As a volunteer organizer for Local 21’s “Conversations and Cards” campaign, Roche is at the center of one of California labor’s most successful post-Janus recommitment drives. Modeled after the work of the United Domestic Workers of America health care workers, the campaign claims it has already increased her local’s dues-paying membership 11 percent from pre-Janus levels to today’s 91 percent.

“My experience is that people will pretty readily sign, because they’re already union members and they get it, Roche said. “I can understand that people have [problems] with unions, but you have to look at the overall good. The facts are that people that are represented by unions tend to do better in terms of salaries and benefits and treatment.”

If the immediate aim of Conversations and Cards is getting workers to sign Local 21’s new Janus-proofed union “Gold Card,” then the heart of the campaign, Gabrelle emphasized, is galvanizing the recommitment through the employee-to-employee conversation — connecting what’s at stake and the meaning of solidarity to produce a more active and long-lasting union member.

For IFPTE’s organizers, the stakes are summed up by Flint, Michigan, the poster child for a city stripped of a robust public sector and laid bare to privatizers. Flint’s lead contamination water disaster was notoriously abetted by Republican Governor Rick Snyder’s widely condemned emergency manager legislation, which itself was drafted with the help of the Mackinac Center. The irony that the same money from Mackinac’s billionaire funders (Betsy and Dick DeVos, the Walton family, the Koch brothers) is also behind both Janus and the California union-busting campaigns is not lost on IFPTE or Ken Jacobs, the chair of the University of California, Berkeley Center for Labor Research and Education.

“What people don’t realize is that as much we’re a labor town — there’s been a push to privatizehere in San Francisco,” said Local 21 volunteer organizer Frances Hsieh, a senior policy analyst for San Francisco’s Office of Civic Engagement and Immigrant Affairs, who has personally signed up 35 Gold Card recommitments. “Unions have been fighting those corporate forces.”

“You go through a wide range of public services, where unions have been a central voice in stopping privatization, the central voice in assuring quality public services,” observed Jacobs. “Look at the Koch Brothers, who have been funding both the anti-union efforts with other billionaires and conservative foundations— their long-term goal had been to destroy public services and shrink government. So unions are an essential part of our democratic system, our democracy.”